Salary exchange FAQs
B. Impact on my salary and University enhanced payments, eg maternity pay
E. Impact on terms and conditions
F. Joining or leaving salary exchange
H. Additional questions added in response to staff questions
Frequently asked questions
1. Who is eligible to participate?
1.1. All full-time and part-time employees who are members of the USS, USPAS or USPSS pension schemes, who earn in excess of £7,800 per annum, and who are employed by the University on or after 1 November 2011 are eligible to participate. Those earning £7,800 per annum or less have been excluded from the exercise because it is not thought to be in their financial interests to participate. See Q4 for more detail.
2. What if I am a member of the NHS or East Sussex County Council Pension Scheme?
2.1. Employees who are members of the NHS Pension Scheme or the East Sussex County Council Scheme will not be eligible to participate as currently these pension providers do not allow Salary Exchange for pensions.
3. Are other employers introducing similar arrangements?
3.1. Yes. Many employers, including other universities, USS themselves and household names such as Nationwide Building Society, Sainsbury’s and Vision Express have introduced similar arrangements to increase employees’ take home pay.
4. Is Salary Exchange right for me?
4.1. Salary Exchange will benefit most employees as their net pay will increase on joining the Salary Exchange.
4.2. If you are a USS member, you should not join Salary Exchange if your total pay before Salary Exchange will be below £5,664 a year (£109 per week) in the 2011/12 tax year. This is because when you deduct the pension contribution (7.5% with effect from 01/10/11) from pay of £109 per week (£5,664 per year) the result is below the NIC lower earnings threshold of £5,304 a year (£102 per week) at which point the earnings count as a qualifying year for state benefit purposes.
4.3. If you are an USPAS member, you should not join Salary Exchange if your total pay before Salary Exchange will be below £5,765 a year (£111 per week) in the 2011/12 tax year. This is because when you deduct the pension contribution (9% with effect from 01/8/11) from pay of £111 per week (£5,765 per year) the result is below the NIC lower earnings threshold of £5,304 a year (£102 per week) at which point the earnings count as a qualifying year for state benefit purposes.
4.4. If you are an USPSS member and you currently make a contribution of 3%, you should not join Salary Exchange if your total pay before Salary Exchange will be below £5,468 a year (£105 per week) in the 2011/12 tax year. This is because when you deduct the pension contribution (3%) from pay of £105 per week (£5,468 per year) the result is below the NIC lower earnings threshold of £5,304 a year (£102 per week) at which point the earnings count as a qualifying year for state benefit purposes. If you make a contribution at a different level, the weekly salary at which you should not join Salary Exchange will be slightly different.
4.5. You may not exchange your pay below the National Minimum Wage.
4.6. For the reasons above, the University has set an initial safeguard limit of £7,800 per annum, and if you earn below this limit then you will be automatically opted out of Salary Exchange. You will continue to contribute to the pension scheme in the same way as you do at the moment. This limit will be reviewed annually. If you are around the £7,800 limit and want to participate, please contact Claire Thomas, HR Adviser, at C.L.Thomas@sussex.ac.uk or on extension 7074.
5. How much will I give up from my gross contractual pay?
5.1. Instead of your pension contribution being deducted from your gross contractual pay and applied toward your pension, you will Salary Exchange your pay, at your current contribution percentage rate at the time, from your gross contractual pay and the University will then increase its contributions to USS, USPAS or USPSS by an amount equivalent to your regular pension contribution.
6. If I am a member of USPSS, why is my Salary Exchange more than the contribution I was making to my pension scheme?
6.1. For USPSS members, employee pension contributions are currently deducted from your net salary and have therefore already been subjected to tax. These net contributions are deducted from your salary and passed to USPSS who then claim basic rate tax back directly from HMRC, thus grossing up the net contribution in the pension fund i.e. for each £80 you contribute from your net pay, USPSS currently reclaim £20 tax and so £100 contributions are added to your fund as employee contributions.
6.2. Under Salary Exchange, your ‘notional pay’ (i.e. pre-Salary Exchange) is reduced by an amount equal to the gross contribution which is made by the University in full. Therefore, no further tax is claimed from HMRC by USPSS as full tax relief is achieved via your payslip, and so Salary Exchange is tax neutral.
6.3. Although your Salary Exchange will be greater than your current net pension contribution you will pay less tax and so the net effect is that you will be in the same net pay position for tax purposes whilst benefitting with an increased take home pay as a result of the NIC savings, so overall you will still see an increase in your net pay.
B. IMPACT ON MY SALARY AND UNIVERSITY ENHANCED PAYMENTS, E.G. MATERNITY PAY
7. How will my pre- and post salary be used?
7.1. Your original salary (pre-Salary Exchange) will be termed your ‘notional pay’ and it is on this ‘notional pay’ that pension contributions made by the University will be calculated. Your salary after Salary Exchange will be referred to as your ‘actual salary’ as it is on this figure that your tax and National Insurance Contributions (NIC) will be calculated.
8. What is the value of my “Salary Exchange”?
8.1. The salary you waive under the Salary Exchange is equal to the value of your regular pension contribution to USS, USPAS or UPSS (as appropriate) - excluding additional contributions (“AVCs”). In exchange, the University would then pay a corresponding amount into the relevant pension scheme. For example, for members of USS, your regular contribution with effect from 1 October 2011 will be 7.5% of your pay; for members of USPAS, your regular contribution with effect from 1 August 2011 is 9%.
8.2. Where employees pay AVCs, these will be excluded from Salary Exchange at this time.
9. What happens at pay reviews or with the annual increment run?
9.1. Neither pay reviews nor the annual increment run will be affected by Salary Exchange. All pay increases will be calculated by reference to your ‘notional pay’ (your gross contractual pay before implementation of Salary Exchange).
10. Will my shift allowance/on call payments/responsibility pay be affected by these arrangements?
10.1. No, your shift allowance, on call payments, responsibility pay and other payments will continue to be based on your ‘notional pay’.
11. Will my reduced contractual pay affect my applications for loans, mortgages etc?
11.1. No, your ‘notional pay’ will be used in respect of any personal official letters required for issues such as mortgage and loan applications.
12. University Maternity Pay
12.1. The University’s policy on maternity pay is not affected by the introduction of Salary Exchange, and the University will continue to enhance SMP in accordance with the University’s maternity pay policy (see University maternity pay policy for details). The enhancement will be based on your ‘notional pay’.
13. University Paternity Pay
13.1. The University’s policy on paternity pay is not affected by the introduction of Salary Exchange, and the University will continue to enhance SPP in accordance with the University’s paternity pay policy (see University paternity pay policy for details). The enhancement will be based on your ‘notional pay’.
14. University Adoption Pay
14.1. The University’s policy on adoption pay is not affected by the introduction of Salary Exchange, and the University will continue to enhance SAP in accordance with the University’s adoption pay policy which mirrors the maternity pay policy (see University maternity pay policy for details). The enhancement will be based on your ‘notional pay’.
15. Sick Pay
15.1. The University enhances Statutory Sick Pay (“SSP”) normally to a number of months at full pay and a number of months at half pay and may extend it on a discretionary basis.
15.2. Enhanced University sick pay is based on your ‘notional pay’ and included in Salary Exchange.
15.3. If your SSP is enhanced under the University sick pay policy then Salary Exchange will continue to operate. Once your entitlement to SSP enhancement expires, the University will continue to pay the statutory minimum of SSP where applicable.
16. What happens if I go on long-term sick leave?
16.1. If you have a long-term absence from work, beyond any eligibility for University sick pay and SSP, and your pensionable earnings are nil as is the current policy, you are still a member of the pension scheme but all pension contributions cease until you return to work and receive salary.
16.2. USS members please refer to the pension scheme rules (fact sheet 4) for situations where your membership of the pension is maintained but contributions to the scheme are suspended.
17. Who benefits from Salary Exchange?
As stated in Qs 1.1 and 4 above, it is not to the financial advantage of some employees to participate in Salary Exchange. Where an employee chooses to participate, both the employee and the employer will benefit from reduced National Insurance Contribution. The documents setting out illustrations of savings on these pages contain information on both employer and employee savings, by comparing National Insurance payments by employer and employee before and after salary sacrifice.
18. How much will I save?
18.1. The amount you save is linked to the level of your gross pay after Salary Exchange and the pension scheme of which you are a member. If your gross annual pay before Salary Exchange is between £7,225 (the primary threshold for NIC in 2011/12) and £42,475 (the upper earnings threshold for NIC in 2011/12) in general, you will save 10.4% of the value of your Salary Exchange as a USS or USPAS member or 12% of the value of your Salary Exchange as an USPSS member.
18.2. If your gross annual pay after Salary Exchange is above £42,475 you will save 2% of the value of the Salary Exchange. If your pay is between £39,077 and £42,475 you will save between 10.4% (USS and USPAS) or 12% (USPSS) - and 2%.
18.3. Employee pension contributions are deducted after NIC has been calculated, whereas no NIC is payable on employer contributions into a registered pension scheme. By entering into Salary Exchange, both you and the University pay NIC on a smaller amount, whilst the total contribution to the pension scheme is completely unaffected.
18.4. Employee pension contributions into HMRC registered pension schemes already attract income tax relief. Participating in Salary Exchange will not change your taxable pay and the amount of tax that you will pay will remain the same.
18.5. For higher rate employees, as a USS or USPAS member, you will continue to receive tax relief through your payslip. However, as an USPSS member who is a higher rate employee, under Salary Exchange, you will also receive the advantage of higher rate tax relief up-front through your payslips. You will no longer have to reclaim higher rate relief through either your annual Self-Assessment tax return or via your PAYE coding notice. If you currently have the tax relief included in your tax code, you will need to advise HMRC that it needs to be removed from 1 November 2011, as you will be receiving it directly via the payroll due to Salary Exchange.
19. How much will the University save and how will this be used?
19.1. The total savings to the University will depend on how many staff participate in Salary Exchange, but is expected to total of the order of £300,000 per year. Since the costs of employment are the responsibility of the areas employing the staff, these areas will simply be relieved of some of this expense; hence, the savings will be distributed across the University automatically by the funding model we use. These savings will be welcome in helping Schools and other areas of the University to manage costs in the uncertain financial climate facing all universities at present.
20. How will this affect my other University benefits?
20.1. Any benefits you receive through the University will not be affected by the new arrangements. The benefits will be based on your ‘notional pay’.
21. What about death in service benefit and life insurance?
21.1. Any death in service and life insurance benefits that you are entitled to will not be affected by Salary Exchange as they will continue to be related to your ‘notional pay’.
21.2. Under the terms of the USPAS pension scheme, the death in service provision includes a refund of the employee contributions into the scheme. Although this provision remains unchanged, as the contributions into the scheme have changed to an employer only contribution, no further employee contribution will accrue from the point that the Salary Exchange arrangement is entered into.
22. What about other state benefits?
22.1. State benefits/entitlements that are based on pay subject to NIC could be affected by the reduction in your gross salary. However, this will not affect the majority of employees joining Salary Exchange.
22.2. Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), Statutory Adoption Pay (SAP) and Statutory Redundancy Pay (SRP) may be reduced, whilst Working Tax Credit (WTC) and Child Tax Credit (CTC) may be increased. Where otherwise reduced by participation in Salary Exchange to below the relevant statutory minimum level, the University will top up the employee’s entitlement to SMP, SPP, SAP and SRP respectively, in order to maintain the relevant statutory minimum level.
22.3. The University does not want employees to lose entitlement to statutory benefits. Therefore, if you earn, before tax and NIC, an average of £102 a week (for the 2011/12 tax year), the Lower Earnings Limit (LEL) for NIC, the University will contact you separately.
22.4. If you have any concerns or want to discuss this further, please speak to your Payroll Assistant (contact details on your payslip). Entitlement to state benefits is a very complex area. If you currently claim any state benefits you should contact the relevant government agency for advice as to how Salary Exchange may affect your entitlement to these benefits. Further guidance can be found at www.HMRC.gov.uk or www.dwp.gov.uk
23. How will Salary Exchange affect my State Second Pension (S2P) entitlement (SERPS pre April 2002)?
23.1. If you are a member who is participating in S2P (i.e. not contracted out), in the vast majority of cases, the NIC savings from joining the Salary Exchange will outweigh the affect of Salary Exchange on your S2P entitlement.
23.2. S2P is based on pay that is subject to NIC. As Salary Exchange reduces pay subject to NIC, the S2P element of your eventual state pension could be slightly reduced.
23.3. If you are contracted out of S2P via a policy in your own name, the amount of money paid into your own policy by the Government (called the Rebate) could also reduce.
24. Will I be able to exchange my Additional Voluntary Contributions (AVCs) into Salary Exchange?
24.1. No, at this time AVCs will not be included within Salary Exchange. Until further notice, AVCs will continue to be deducted from your salary as they are currently.
E. IMPACT ON TERMS AND CONDITIONS
25. Will my employment contract/terms and conditions change?
25.1. Yes. If you do not opt-out of the Salary Exchange by returning the Opt-Out Form to the University (see Q31) then your employment contract terms will be changed to implement the Salary Exchange. For that reason, we have given you written notice of the change that will come into effect, and an opportunity to opt out of the change.
26. Does Salary Exchange require HMRC approval?
26.1. Salary Exchange is a change to your terms and conditions and is, therefore, a matter of employment law not tax law. However, we will provide full disclosure of Salary Exchange to HMRC and obtain their confirmation that it meets their requirements.
F. JOINING OR LEAVING SALARY EXCHANGE
27. If my circumstances change after I join Salary Exchange can I leave Salary Exchange?
27.1. If you are participating in Salary Exchange, and want to opt out, you will only be able to do this once every 12 months or on the occasion of a ‘lifestyle event’. You will need to complete the Opt-Out form available on the HR web site and return it to Helen Kalkbrenner, PA to the Director of HR, in advance of the anniversary of the scheme such that it is received on or before 30 September each year.
27.2. If you opt out of Salary Exchange, having been a participant, it will constitute an amendment to your terms and conditions of employment. Your pay will revert to what your pay would have been if you had not joined Salary Exchange and you will no longer participate in the Salary Exchange.
27.3. After opting out of Salary Exchange, you will only be able to rejoin on the 12 month anniversary of Salary Exchange – i.e. on 1 November each year. You will need to complete the Opt-In form available on the HR website and return it to Helen Kalkbrenner, PA to the Director of HR, prior to the anniversary of the scheme such that it is received on or before 30 September each year.
28. What is a ‘Lifestyle Event’?
28.1. HMRC guidance describes a “lifestyle event” as unforeseen life events and these would include (although would not be limited to) such things as:
- Marriage;
- Divorce or separation;
- Bankruptcy;
- Birth or adoption of a child;
- Commencement of, or return from, maternity leave;
- Commencement of, or return from, long term illness;
- Significant change in working hours, such as a change from full-time to part-time;
- Moving from a fixed-term contract to a permanent contract;
- Change of grade at which you are employed;
- Commencement of, or return from, sabbatical or unpaid leave or an
overseas secondment; - Reaching State retirement age;
- Becoming eligible to join the USS scheme;
- Leaving the USS scheme;
- Death of an immediate family member;
- Material changes in a partner’s circumstances (e.g. redundancy);
- Your gross contractual pay increases above or decreases below the £7,800 limit.
28.2. If you believe a lifestyle event has occurred which affects your participation in Salary Exchange, you should notify Human Resources.
29. What if I do nothing?
29.1. If you do nothing you will be entered in to Salary Exchange when it commences. The Salary Exchange will be at the same level as your current employee pension contribution at the time.
30. How do I apply to join Salary Exchange?
30.1. If you wish to join Salary Exchange you do not need to do anything. The Salary Exchange will be at the same level as your current employee pension contribution at the time. The University has undertaken a detailed review and analysis of this Salary Exchange and believes it is beneficial for staff.
30.2. Once you have joined Salary Exchange, you will not be able to opt out of Salary Exchange for 12 months. If you subsequently opt out of Salary Exchange your net pay will decrease without any advantage to your pension provision.
30.3. New staff joining the University will automatically be included in Salary Exchange unless they complete an Opt-Out form and return it to Helen Kalkbrenner, PA to the Director of HR, within 4 weeks of joining USS, USPAS or USPSS.
31. Can I opt out of Salary Exchange?
31.1. Salary Exchange is optional but if you join, it will increase your net pay and maintain your pension provision.
32. What if I leave the pension scheme?
32.1. Currently, if you leave the pension scheme your options are dictated by how long you have been a member of the scheme. More details can be found in the pension member’s booklet.
32.2. After Salary Exchange is implemented, you will no longer make member’s contributions to USS, USPAS or USPSS (because the University has increased its contributions instead). As a result, if you leave both the pension scheme and Salary Exchange within 3 months of joining then you will not receive a refund. If you leave the pension scheme and Salary Exchange between 3 months and 2 years of joining, you will still be able to transfer the contributions made by the University to another pension scheme (or become a deferred pension member).
32.3. The options available to leavers with more than 2 years’ pensionable service are unaffected by Salary Exchange.
33. If this is such a beneficial development, why hasn't the University done this before?
33.1 Our payroll system has up until now been unable to process salary exchange for pensions. However, we have now obtained the appropriate software update for the scheme from another university that has already implemented it.
34. What if Salary Exchange ceases?
34.1. The University is committed to Salary Exchange as long as HMRC allow this type of Salary Exchange to operate and there are benefits to both employer and employee. However, if for any reason the University can no longer, or decides it is no longer sensible to operate Salary Exchange, you will revert to the current arrangements. The University is under no obligation, and does not accept any liability, to provide any form of compensation for any cash advantage lost from ceasing to operate Salary Exchange.
35. What if I have any further queries about Salary Exchange not answered here?
35.1. As stated above, entitlement to state benefits is a very complex area. If you currently claim any state benefits you should contact the relevant government agency for advice as to how Salary Exchange may affect your entitlement to these benefits. Further guidance can be found at http://www.hmrc.gov.uk/or www.dwp.gov.uk.
35.2. The University is not permitted in law to give any financial advice regarding your pension provision. If you do need any financial advice regarding your pension options, you should contact an Independent Financial Advisor.
36. Is the University offering computer purchase under the Government's Home Computer Initiative (HCI)?
36.1 The Government closed the HCI scheme in 2006. As a member of staff at Sussex you can however take advantage of discounted prices on computer equipment - see ITS pages for further information.
Additional Q&A [added in response to staff questions]
37. I don’t pay National Insurance anymore.
37.1 Once you reach State Pension Age you stop paying National Insurance Contributions (NIC), but the University continues to pay employer’s NIC on your salary. By participating in Salary Exchange there would not be any effect on your net pay. However the University would still make a saving. As with other employees, you can choose to opt out of Salary Exchange if you so wish.
38. What happens about future pension contributions increases?
38.1 Salary Exchange will not affect the process of setting pension contribution rates.
39. Will voluntary severance packages be based on notional salary?
39.1 Yes
Please note that these FAQs are for guidance only and are not intended to confer a right to benefits.